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TABLE OF CONTENTS
EXECUTIVE SUMMARY......................................................................................1
1.
INTRODUCTION: BASIC CONCEPTS.......................................................1
2.
SUMMARY OF THE CURRENT INSTITUTIONAL FRAMEWORK............4
3.
INSTITUTIONAL FRAMEWORK and FUNCTION SEPARATION..............5
4.
AIRPORTS...................................................................................................7
4.1. Corporatisation
7
4.2. Commercialisation 9
4.3. Privatisation 11
4.3.1.
Basic privatisation modes 12
4.3.2.
Ownership/Institutional typology 16
4.3.3.
Evaluation of PPP experiences and ownership operation types
18
5.
AIR NAVIGATION SERVICES (ANS)........................................................20
5.1. Corporatisation
21
5.2. Commercialisation 26
5.3. Privatisation 27
6.
SOME CONCLUSIONS: THE CASE OF NEPAL......................................28
6.1. Objectives and approaches
28
6.2. Airport and ANS differentiation 29
6.2.1.
Airports
30
6.2.2.
Air Navigation Services 31
6.3. Concluding remarks
32
REFERENCES...................................................................................................34
EXECUTIVE SUMMARY
This report provides background for the institutional review of the Civil Aviation
Administration in Nepal. I it is closely linked to the report on the review of the
civil aviation legislation in as much as it is such legislation that defines the
current institutions.
The purpose of this report is to present the most important options available for
institutional reform and set them in the context of international comparative
experiences. It does not attempt to address the legal or organisational issues
involved in any future reform, but rather to make available a condensed review
of current practices around the world.
The report is organised around three basic concepts which are commonly found
in all modernisation efforts in the field of civil aviation administration:
Corporatisation
Commercialisation
Privatisation
To some degree, all three concepts involve the introduction of practices that
historically had been reserved for private firms, but which for the last thirty years
have been translated to some degree to certain domains of the public sector.
In the field of aviation, the main forces driving institutional reform are, and have
been for the last decades in many countries: a) the need to provide a clear
separation between regulatory and service provision activities; b) a desire to
improve efficiency and to improve the quality of the services provided; and c) the
financial realities of building and operating infrastructures and services requiring
large amounts of capital and undergoing constant technological renovation.
Understanding how the three basic concepts have been implemented in other
countries will provide some guidance for the discussion of these topics in Nepal.
The report covers each concept as it applies to airports and air navigation
services in a separate way. The reason for this separate treatment stems from
the fact that airports and ANS have followed rather different paths in their
institutional evolution. Despite their multiple commonalities, it can be said that in
many countries, airports have clearly evolved towards greater privatisation,
while the ANS provision has adopted some of the ways of the private sector, but
Capacity development of the Civil Aviation of Nepal
Review of the Institutional Framework
has eschewed the introduction of private capital and the establishment of public
private partnerships.
The report summarises the experiences from a variety of countries, and
examines the opinions expressed by authoritative international bodies like ICAO
and CANSO. It concludes by presenting the basic objectives that may be
pursued in the review of the institutional framework, and explains how the
choice of objectives affects the alternatives for implementing corporatisation,
commercialisation and privatisation.
In the case of airports, a separation is established between existing and new
infrastructures, so the report delineates a possible gradual approach which
could lead to the introduction of private participation, but does not necessarily
have public private partnerships as a goal.
Regarding the ANS provision, the report does not contemplate the need to
introduce any private involvement, but considers commercialisation as a
necessity. It sees corporatisation as an avenue that could be avoided if the
current institutional framework could be made to implement financial autonomy
in actual practice.
Full privatisation
In March 2011, the National Planning Commission issued the "White Paper on
Public Private Partnership (PPP)" in which the Government of Nepal clarifies
the official view on PPP, and proposes a road map for future action.
Page 12 of the White Paper presents a very clear graph of what can be
considered PPP:
http://ppi.worldbank.org/resources/ppi_methodology.aspx
divestitures"
The World Bank database emphasises the fact that private participation must
always entail the assumption of some degree of risk by the private sector.
"Management and lease contracts transfer at least partially the operational risk to a
private sponsor through contractual obligations. In greenfield projects and
divestitures, the operational risk is transferred to a private party through contractual
obligations and/or equity ownership in the project."
The White Paper on Public Private Partnership takes a somewhat stricter view
of PPP, and requires that "a substantial transfer of appropriate risk takes
place to the private party". Therefore, under the existing policy of the
Government of Nepal, management and lease contracts would probably not
qualify as PPP, although there is no denying that such arrangements constitute
a valid way to introduce some degree of private participation.
Each of these options may be better suited for a different situation or a different
type of service, as evidenced by the diversity of routes undertaken by other
countries regarding the provision of airport infrastructures on the one hand and
air navigation services on the other.
The International Civil Aviation Organisation (ICAO) does not recommend or
prescribe a specific form of organisation, but the Council has adopted a welldefined position which is presented in Doc 9082 ICAOs Policies on Charges
for Airports and Air Navigation Services. Paragraphs 11 to 13 state the
following:
11. The Council observes that experience gained worldwide indicates that where
airports and air navigation services have been operated by autonomous entities
their overall financial situation and managerial efficiency have generally tended to
improve. Many of these autonomous entities have been established by
governments although the operation of many such entities, in particular those
operating airports, has since been transferred partly or completely to private
enterprises.
12. The Council, therefore, recommends that where this is economically viable and
in the best interest of providers (airports and ANSPs) and users, States consider
establishing autonomous entities to operate their airports or air navigation services,
Capacity development of the Civil Aviation of Nepal
Review of the Institutional Framework
recognizing that in some circumstances a single entity may operate both airports
and air navigation services, and that the entity may be in the form of an
autonomous civil aviation authority.
13. The Council emphasizes with regard to private involvement that States,
when considering the commercialisation or privatisation of airports and ANSPs,
bear in mind that the State is ultimately responsible for safety, security, and, in view
of the potential abuse of dominant position by airports and ANSPs, economic
oversight of their operations.2
It is not the purpose of this report to examine the current structure of the
Authority. Suffice it to say that regulatory and oversight functions are essentially
entrusted to three Departments reporting to the Director General, Aviation
Safety Department, Aerodrome Safety and Standards Department and ANS
Safety and Standards Department. Airport management is in the hands of the
Tribhuvan International Airport Civil Aviation Office and Domestic Airport
Department, while CNS and ATC services are handled by two additional
Departments. Meteorological services are provided by the Department of
Hydrology and Meteorology under the Ministry of Environment.
The current structure is designed to provide separation between service
provision and regulatory functions, but some staffing issues, together with the
fact that there is no financial differentiation, have prevented this goal from being
completely attained.
In a future stage of the project, the current structure of the CAAN will be
analysed in detail in order to provide clear grounds for the formulation of
reorganisation proposals in a revised institutional framework.
For the purposes of this report, the two basic features of the CAAN to be
emphasised are the inclusion within a single organisation of service provision
and regulatory functions and the theoretical, but not actual, configuration of the
Authority as an autonomous self-financing body.
This institutional arrangement would satisfy, in principle, the requisites set by
ICAO in the above-mentioned Doc 9082, because the CAAN meets, in theory at
least, the requirement of being an autonomous civil aviation authority and
operates both airports and air navigation services.
Bridging the gap between the legal provisions and the actual degree of
autonomy of CAAN, is the greatest challenge from the institutional point of view.
efficiency and in responsiveness to the needs of the aviation sector, and thus to
the introduction of a private sector managerial culture or the participation of
private initiatives.
This is the view advocated by the main international organisation in the field of
air navigation services. The Civil Air Navigation Services Organisation
(CANSO), in the Guide to Separation of Service Provision & Regulation, states
that:
"If providers of air navigation services will be empowered by their States to
concentrate on the business oriented management of the service function and the
delivery of safe, environmentally sustainable, efficient, cost-effective and seamless
services, they will be in a better position to respond to the different needs of their
stakeholders, in particular their customers. Further, this empowerment will enable
them to employ their choice of vehicles to improve their performance, e.g. enter in
agreements with other ANSPs and further industry partners to create regional
efficiencies".3
4. AIRPORTS
Airport management around the world started in a similar manner, being
handled in many cases by the aviation administration. Prior to WWII,
nevertheless, there were a few airports in Europe, like Frankfurt in Germany or
Milano-Malpensa in Italy, which were built entirely by private investors.
Following the war, the rule became that airports were built and operated by
public administrations because they were considered an essential service which
could easily fall prey to monopolistic practices. The tradition of government
owned and operated airports is still very strong, and is present in roughly half of
the worlds airports,. However, in many cases, public ownership does not
always mean that the operation is not conducted following business principles.
In fact, there has been a steady trend towards the introduction of organisational
or managerial principles promoting greater efficiency.
In the quest for greater efficiency, better performance and economic viability,
governments have resorted to multiple alternatives. As mentioned in the
Introduction to this report, the main approaches have been corporatisation,
commercialisation and privatisation.
Such approaches are in no way mutually exclusive. On the contrary, it can be
said that they can complement each other, and at times are seen as a
progression of steps towards better air transportation. Corporatisation may take
place as a preparatory phase in which the airport is transferred to a public
corporation that will later be offered to private investors: Commercialisation will
necessarily accompany any other measure if the economic viability of an airport
is to be assured.
4.1. Corporatisation
Corporatisation has become a widely used expression which can often be found
in studies and policy documents relating to airport management. For example,
the report "Policy on Airport Infrastructure in India", submitted by the Task Force
on Infrastructure of India, includes several mentions to the fact that "There is a
definite worldwide movement from monopoly state ownership of airports to
corporatisation."6 This is a term which many use with profusion, but very few
define with precision. Few authoritative definitions of the term corporatisation
can be found in the literature, but most would authors agree that it refers to the
Task Force on Infrastructure of India. Policy on Airport Infrastructure in India. un-numbered
pages.
6
ICAOs words should be taken as a call to attention for all those approaching
the issue of institutional reform in Nepal. The Civil Aviation Authority is designed
already as an autonomous body operating all the airports in the country as well
as ANS, and carrying out the regulatory and oversight functions. Further
corporatisation could take place by separating airport management functions
and entrusting them to a new entity operating under private law in order to
maximize flexibility and efficiency. However, in doing so, there may be a risk of
duplicating functions in a situation where resources of all kinds are very scarce.
There is obviously a need for a very careful evaluation of how the existing
resources are currently being allocated, what new resources is it reasonable to
7
ICAO. Doc 9562 Airport Economics Manual, Second Edition 2006. p. 2-5.
expect in the future, and whether the duplication to which the ICAO document
refers is a real possibility.
4.2. Commercialisation
In the quest for greater efficiency and financial self-sufficiency, airports around
the world have also turned to commercialisation. Doc 9562 provides the
following definition for this term:
Commercialisation. An approach to management of facilities and services in which
business principles are applied or emphasis is placed on development of
commercial activities8
This definition includes the two elements which commercialisation may include,
although it is not necessary to contain both: on the one hand, the
implementation of business practices, and on the other hand, the
development of commercial activities.
Commercialisation usually goes hand in hand with corporatisation. It is difficult
to envision a purely administrative body operating strictly under public law
implementing business practices or developing commercial activities. The
constraints usually associated with the operation of any public administration
make it very difficult, if not impossible, to operate in any manner close to what
private firms or autonomous bodies can achieve, hence the need to resort to
institutional arrangements allowing the adoption of a commercial approach. In
what some have termed a flight from administrative law, 9 not only airports, but
all types of public services have been handed over to publicly-owned
corporations or autonomous bodies operating under private law.
It goes without saying that privatisation will also always include a high degree of
commercialisation, because private investors will always require that economic
viability is assured by increasing all possible revenues. The link between
commercialisation, corporatisation and, increasingly, privatisation, becomes
increasingly obvious as we move away from the classical aeronautical functions
towards non-aeronautical sources of revenue. ICAOs Policies on Charges for
Airports and Air Navigation Services expressly mention ofsuch a source when
stating that:
Such a statement, nevertheless, does little justice to the fact that non- aviation
activities are increasingly important in many airports and tend, on average, to
approach 50% of the revenue. In a study conducted by the Air Transportation
Research Society (ATRS) in 2011 covering 156 airports around the world, the
findings clearly show how airports are increasingly turning to commercial
revenues to finance their operation and investments.
The following chart depicts the importance that non-aviation related revenue is
gaining in many airports in different parts of the world:
Source: Key Findings of 2011 ATRS Global Airport Performance Benchmarking project.
The Air Transport Research Society (ATRS)11
The findings presented in the chart may not agree completely with other
research studies, but this only goes to show the difficulty involved in defining
adequate indicators and methodologies. In another study conducted by SH&E,
it was found that concession revenue share of total airport revenue in 2009
Doc 9082. p. 14.
Prof. Tae Oum and others. Key Findings of 2011 ATRS Global Airport Performance
Benchmarking project. The Air Transport Research Society (ATRS). 2012.
10
11
10
could be estimated as 49% in Europe, 47% in Asia Pacific and Middle East,
41% in North America and 28% in Latin America.12
According to ICAO Doc 9562, non-aeronautical sources of revenue include
fees for the right to operate business at the airport, rentals of leased land and
premises and, to a much lesser extent, from commercial operations operated
by the airport itself. Airports may also receive revenues from commercial
activities operating off the airport but relying on airport traffic for their customer
base.13
In addition to the most commonly found concessions which are oriented to
travellers and airport workers, this Document mentions cargo facilities, including
the so-called cargo villages, the provision of shopping and entertainment for
the nearby areas, and the creation of free zones and airport cities where
multiple sorts of development or economic activity can take place.
It should not come as a surprise that in the recent privatisation of some Indian
airports, the possibility of maximising commercial revenues has played an
important role. The greenfield projects approved in Bangalore (BIAL) and
Hyderabad (HIAL) include a considerable extension of subsidized land to
support the airports future viability through real estate development as
evidenced by the fact that BIAL has been allocated a 4050 acre plot and HIAL
5400 acres. This means, for example, that the new airports will have
substantially more area than Heathrow, with 3000 acres, while sustaining only a
small percentage of the traffic14.
4.3. Privatisation
While airport corporatisation and commercialisation can be introduced without
any transfer of ownership or management away from the public sector,
privatisation implies that the private sector will own an interest or participate in
managing the infrastructure.
The term "privatisation" is used here in a broad sense that includes any form of
private participation in the design, construction, operation and ownership of
airport infrastructures.
4.3.1. Basic privatisation modes
Abbas Mirza. Ways of Maximizing Airport Commercial Revenues. SH&E. 2011.
ICAO. Doc 9562. Airport Economic Manual. 2006 p. 6-2.
14
Manuj Ohri. Airport Privatisation in India A Study of Different Modes of Infrastructure
Provision. University of Delhi, 2009.
12
13
11
There are many ways to classify privatisation modes, depending on the criteria
to be used. One could look at whether ownership is transferred or not, at the
duration of the agreement or the extent of the functions allocated to the private
sector.
For the sake of simplicity, this report will focus on the basic privatisation modes
mentioned in the White Paper on Public Private Partnership (PPP), namely:
Service Contract
Management Contract
Lease
DBFMO / Concession
Full privatisation
12
Long-term lease agreements are often used when substantial investments are
required in an existing airport. The lessee undertakes to conduct the new
development or renovation, and assumes management for the duration of the
lease. Such duration is usually rather long, depending on the amount of
investment required and the amortization rate established.
The public sector retains ownership and control of the infrastructure, but the
private sector is in charge of all managerial functions and assumes the
operational risk in full or in part. Usually the airport operator collects all airport
fees, and pays the owner a fee which may be based on gross revenues.
Depending on how they are structured and on the law governing the contract,
lease agreements may be difficult to differentiate from concessions. The LOT
and LBOT approaches mentioned below are variations on the lease mode.
Long-term leases have been the instrument of choice for the privatisation of
airports in a number of countries, like Canada, Australia, Argentina, Peru,
Greece and the Philippines.
c) DBFMO / Concession
DBFMO (Design, Build, Finance, Maintain and Operate) is one of the many
variants of PPP modes which would fit under the provisions of Section 3 of the
Private Financing in Build and Operation of Infrastructures, 2063 (2006), which
include:
"(a) Build and transfer,
(b) Build, operate and transfer,
(c) Build, own, operate and transfer,
(d) Build, transfer and operate,
(e) Lease, operate and transfer,
(f) Lease, build, operate and transfer,
(g) Develop, operate and transfer,
(h) By other methods of similar kind."
(b)
13
(c)
(d)
(e)
(f)
14
Transfer), despite the fact that each has its own features, and that in most
cases, such designation omits the fact that design, finance and maintenance
are more often than not included in the package. It is also common to consider
that all these approaches are variations on the concession concept, where
government never relinquishes ownership of the infrastructure.
In India, concessions to develop existing airports and operate them for 30 years
have been the model applied both for the Indira Gandhi International Airport in
Delhi and the Mumbai International Airport, whereas for the greenfield projects
in Bangalore and Hyderabad, private participation has been instrumented via
BOT.
d) Full privatisation
What separates the previous modes from full privatisation, or divestiture, is the
fact that the public sector maintains some interest in the venture. At some point,
all of these modes include the transfer of the infrastructure to the administration.
Full privatisation, on the other hand, means that the public sector no longer
holds any ownership title, and can only influence the operator by means of
regulatory powers.
Divestiture means that a public infrastructure will end up totally in the hands of
private parties and government will have no possibility of direct control. Airports
are considered to have strategic importance, so it is not common to find
examples of full privatisation in the aviation sector. This does not mean that
there are not any examples in this field. In fact, there exists a very important
one, The British Airports Authority (BAA), which was fully privatised in 1987 and
for many, signals the beginning of the privatisation trend in airport construction
and management.
A variation on the theme of full privatisation is partial divestiture, when the public
sector sells or otherwise allocates ownership of only part of the infrastructure to
the private sector. Such a model has been applied in several airports in Europe,
notably Copenhagen, Frankfurt, Wien and Zurich, as well as the international
airports in Thailand and the Osaka Kansai Airport in Japan. This is the model
that is being applied in China to introduce private participation in some of the
main airports: Wuhan Airport, Xiamen Gaoqui International Airport, Shenzhen
International Airport, and Shanghai Pudong Airport.
15
Full privatisation also takes place in the case of BOO (Build, Own, Operate)
because the private party does not have to transfer the infrastructure to
government at the end of a certain period of time.
The following statistics, provided by the the World Bank provides, in the PPI
Database give an idea of the number of projects in the aviation sector using
each mode. The term "greenfield" in the table below designates new
construction projects under BLT BOT or BOO. Concession is defined as: "A
private entity takes over the management of a state-owned enterprise for a
given period during which it also assumes significant investment risk."
Projects by Region and Type 1991-2011
Region
Concession
Divestiture
Greenfield
project
6
12
41
3
4
5
71
11
4
1
0
0
3
19
9
7
6
4
4
3
33
Managmt.
and lease
contract
2
6
4
4
2
1
19
Total
28
29
52
11
10
12
142
15
16
2.)
3.)
16
17
Professor Tae Hoon Oum, of the University of British Columbia, is one of the
leading scholars in the discipline of airport performance evaluation. In a study of
116 airports conducted in 2006 on "Privatization, Corporatization, Ownership
Forms and their Effects on the Performance of the Worlds Major Airports", the
researchers came to a number of interesting, and at times revealing,
conclusions which can be summarized as follows 17:
Tae H. Oum, Nicole Adler and Chunyan Yua: Privatization, Corporatization, Ownership Forms
and their Effects on the Performance of the Worlds Major Airports. The UBC P3 Project.
Working Paper 2006-02. University of British Columbia, Sauders School of Bussiness. 2006.
Available at http://csgb.ubc.ca/files/p3/2006_02_oum.pdf
18
Oum et al. 2006, pp.14-15.
17
18
Other authors have reached similar conclusions. After analysing the possible
impact of competition and different types of regulation, Nicole Adler and
Vanessa Liebert conclude in their study Competition and regulation (when
lacking the former) outrank ownership form in generating airport efficiency that
Across the board, airports with less that 50% of shares traded privately prove to
be significantly less efficient than other ownership forms, a group which includes
Athens, Hanover and Vienna. Fully private airports do not prove to be statistically
significantly different in terms of cost efficiency than their fully public counterparts,
in line with Oum et al. (2006)19
Other authors have argued that such findings are not conclusive due to the
inherent difficulties in this kind of research. Theyindicate that in the case of
airports, performance measurement should also take into consideration other
factors like the degree of vertical integration, economies of scale, regulatory
arrangements and charges20.
Other authors have adopted non-quantitative approaches in order to compare
the relative strengths of different privatisation efforts in the field of air transport
infrastructure. The World Bank PPIAF published a report entitled Investment in
Air Transport Infrastructure: Guidance for developing private participation. In it,
the authors analyse a series of case studies (prepared by Booz Allen Hamilton)
and provide a table of summary performance assessment of the situation after
privatisation, presented in comparative terms. The table includes a summary of
the findings regarding investment, output, prices, finance, operating efficiency
and service level/quality. In most of the airports compared, the effects of
privatisation are considered positive, only a minority are rated as poor in the
majority of fields (Cameroon and Argentina), and the remainder are qualified as
good, and in some cases, excellent in most fields 21.
Other studies conducted for single countries, like Canada or Australia, also
reach positive conclusions about the effects of privatisation on airports, but
there is no evidence in the literature that the improvements experienced in
privatised airports are due to a large degree to corporatisation and a more
Adler, N., Liebert, V. (2010). Competition and regulation (when lacking the former) outrank
ownership form in generating airport efficiency. In The GAP workshop Benchmarking of
Airports, Berlin, Germany, 25-26 November 2010 (p. 27). Berlin, Germany: GAP (German
Airport Performance)
20
Jrgen Mller, Tolga lk and Jelena ivanovi. Privatization, restructuring and its effects on
performance: A comparison between German and British airports. GAP, Paper No. 16, 04/2009.
21
Mustafa Zakir Hussain, Editor, With case studies prepared by Booz Allen Hamilton.
Investment in Air Transport Infrastructure: Guidance for developing private participation. World
Bank, PPIAF, 2010, Table 9.2 pp. 146 to 151.
19
19
The same manual goes on to explain that Air Navigation Services are often
provided by the civil aviation administration, but that there is a growing number
of states where some functions are being exercised by autonomous entities.
The functions that most commonly have been transfered relate to ATS, ATM and
some CNS services.
The Manual also states that MET services are usually provided by a separate
meteorological entity which in many States reports to another branch of
government.
The aforegoing statements from the ICAO Manual accurately reflect the fact
that while in the airport sector there has been a steady trend towards the
introduction of business management practices or private investment, in the
field of ANS the move towards this sort of institutional change has been far
more restrained.
In the words of the Civil Air Navigation Organisation (CANSO):
22
20
Privatisation in the provision of air navigation services has not been seriously
considered in most of the States. These services are considered as more
connected with safety of aircraft operations, and to have national defence and
external relation implications, and consequently less suited for privatisation. Air
navigation services are also perceived as closely related to the sovereignty of a
State as it provides for aircraft and air carriers of foreign States to enter
national airspace.23
The fact that States have been generally reluctant to leave ANS in the hands of
the private sector does not mean that there has not been an important move
towards institutional arrangements aimed at guaranteeing the effective
separation between regulatory functions and service provision. In a number of
cases, reforms have also been introduced in order to reduce the costs to the
State generated from the provision of such services.
As in the case of airports, institutional reforms can be categorised as
corporatisation, commercialisation and privatisation. Each of these
categories is discussed separately in the following pages.
5.1. Corporatisation
Corporatisation options, as in the case of airports, are rather varied, and
depend to a large degree on the legislation in each State. According to ICAO:
2.10 There are three basic or core organizational structures for providing air
navigation services at the national level. These are as follows:
a) a government department that is subject to government accounting and
treasury rules; its staff are employed under civil service pay and conditions of
service;
b) the autonomous public sector organization that is separate from an
executive arm of government but the government has total ownership of the
organization; and
c) the private sector organization that is owned by private interests either totally
or with the government holding a minority share.24
23
24
Developing countries:
Afghanistan, Algeria, Angola, Armenia, Bahamas, Bahrain,
Bangladesh, Barbados, Belarus, Belize, Bolivia, Botswana, Brunei,
Chad, Chile, Cook Island, Costa Rica, El Salvador, Ethiopia,
CANSO. Guide to Separation of Service Provision & Regulation. August, 2011. P. 41.
ICAO. Doc 9161, p.25.
21
Government Agency
State Enterprise
Corporatised Entity
Partly Private Entity
Source: CANSO. Guide to Separation of Service Provision & Regulation. August, 2011. P. 42.
This table can be completed by pointing out that ATC has been totally privatised
at certain airports in Spain, where services will be provided by private
companies without Government participation.
In most cases, corporatisation has been a means of establishing a clear
separation between regulatory and service provision functions. That goal has
been achieved through a variety of institutional arrangements which range from
government-owned entities fully integrated in the public sector to corporations
established under private law with some degree of private participation. Some
relevant examples include the following countries:
Canada: Nav Canada was incorporated in 1995 under the provisions of the
Canada Corporation Act, which means that it is a private company. Despite
22
being fully privatised, the company is rather peculiar when compared with
other corporations in the private sector. It is defined as a not-for-profit, nonshare capital corporation. Instead of responding to shareholders, it
responds to a board of directors representing the main stakeholders, namely
the air carriers association, pilots and other aviation industry
representatives, as well as the unions and the Canadian Government.
South Africa: Air Traffic and Navigation Services Company Limited (ATNS)
was established in 1993 as a State-Owned Enterprise (SOE). The company
is fully owned by the Government of South Africa.
25
Ira A. Lewis and Roxanne Zolin. The public to private continuum measure and
23
Although the corporatisation drive has not been as significant with ANS as it has
been in the airport sector, there are a significant number of examples
evidencing how different governments have approached institutional reform by
means of establishing autonomous entities or corporations. A 2008 study
26
http://www.centreforaviation.com/analysis/dfs-looking-at-a-stake-in-nats-64577
24
estimated that there were some 40 countries that had implemented neo-liberal
administrative and management reforms in their Air Navigation Services
(ANS) in the past two decades. Modernisations preoccupation with structural
change has seen the provision of ANS increasingly move from public sector
organisations to autonomous entities whose organisational forms now
include performance-based agencies, Government Business Enterprises and
Corporations, Public-Private Partnerships (PPP), and private not-for-profit
models.27
The fact that a number of countries have opted for the provision of ANS through
autonomous organisations or even private law corporations does not mean that
this is the only way to achieve proper separation between regulatory and
service provision functions. Evidence in some States, like France, indicates that
it is perfectly possible to achieve an adequate degree of separation while
maintaining both functions inside the regular administration. However,
organisational separation facilitates the required functional and financial
autonomy necessary to guarantee that both kinds of functions do not interfere
with each other.
Not all components of ANS have been the object of corporatisation efforts: the
most significant exception being meteorological services, which have remained
under government operation in the majority of States. The fact that these
services are provided by a separate organisation or branch of government can
raise cost allocating issues because it complicates the task of providing a
transparent system of charges and recovering all incurred costs from the
service recipients. A study linking structure to performance reached the
conclusion that ownership and control are not in themselves critical factors, and
that what is most important is that managers have control of resources, levels of
service and business decisions, and that they may be held accountable for
performance.28
5.2. Commercialisation
In the case of ANS commercialisation is not approached as a means of
generating commercial profits, but first and foremost, as the way to obtain
financial autonomy and alleviate governments financial constraints. Air
Alan Jones and James Guthrie. Protecting Public Interest in Modernised Skies. 5TH
International Conference on Accounting, Auditing & Management in Public Sector Reforms.
Amsterdam, September, 2008
28
Glen McDougall. ATC Commercialization Policy: Has It Been Effective? Presentation to the
World Bank. April 2006. p. 32.
27
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having joined the capital of an ANS provider motivated purely by the profit. The
closest example would be BAAs participation in NATS, with a substantial
investment, but even in this case the motives are more closely related to the
fact that BAA is the largest airport operator in the county than to purely
economic interests on the part of the investor.
As a general conclusion, it can be said that in the field of Air Navigation
Services provision, there has been a moderate degree of corporatisation
accompanied in most cases by a measure of commercialisation. However, there
has been no privatisation as governments tend to consider such services as too
close to the national interest to allow a significant participation from the private
sector.
Modernisation efforts in the form of corporatisation and commercialisation have,
nevertheless, proved to be generally successful, and have allowed
governments to ensure the separation of regulatory and service provision
functions while at the same time raising the quality of service and alleviating the
requirements placed on the public budget.
27
In the case of Nepal, achieving some of these objectives has become even
more important in recent times due to the pressure derived from two cumulative
factors:
If function separation is the only objective, the conclusion may be that the
current framework could be viable with minimal modifications.
If increases in efficiency and service quality are also desired, then it will
be necessary to introduce a greater degree of corporatisation in order to
facilitate the adoption of more business-oriented management practices.
If the goal is to attract private funding, then some form of privatisation will
be mandatory.
28
29
30
31
32
REFERENCES
Adler, N. and Liebert, V. (2010), Competition and regulation (when lacking the former) outrank
ownership form in generating airport efficiency,. in The GAP workshop Benchmarking of
Airports, Berlin, Germany, 25-26 November 2010..
Airports Council International. (2010), The Ownership of Europe's Airports.
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